1. Marketing mix
Pricing strategies

2. WHAT ARE PRICING STRATEGIES
One of the most difficult, yet important, issues you must decide as an entrepreneur is how much to charge for your product or service.

3. A look into price
Price will not be determined by just demand and supply.
So what are the factors that will alter price?
Brand name (external factor)
Competitor’s price (External factor)
Cost of production (internal factor)
Willingness of the consumer to pay for a product or sevice

4. While there is no one single right way to determine your pricing strategy, the following will help you to understand the concept better

5. Why should a company adopt pricing strategies?
Increasing market share
Breaking into a market
Make profits

6. Pricing strategies: AN OVERVIEW

7. Cost-plus pricing
COST OF MANUFACTURING THE PRODUCT PLUS A PROFIT MARK-UP
For example:
Cost of manufacturing bars of chocolate= £ 1000
(i.e) cost of manufacturing 1 bar = £ 10
If the producer wants to make a 60% profit on the bar, he has to set the selling price at £ % of 10= £ 16

8. Selling price = total cost X mark-up %
output
ADVANTAGE:
This method is easy to apply
Cost of manufacturing is covered
DISADVANTAGE:
The firm could lose sales if the selling price is higher than the competitor’s

9. Penetration pricing
When a firm enters a new market, it sets its price lower than the competitors’ price to be able to enter a new market.
Company needs to:
Understand the competitor’s price and set its price accordingly
Ensure that it sells more than the competitor
Makes its way into the market

10. Price skimming
This is somewhat opposite of penetration pricing. Do you have a relatively new technology that nobody else is offering? Why not “skim” off the customers who are willing to pay more in the beginning. Once demand from the early adopters falls, you can then lower your prices.

11. Price skimming ADVANTAGE Help establish a product in the market
Consumers might assume the product to be of a good quality
DISADVANTAGE:
Potential customers might be put off because of the high prices

12. COMPETITIVE PRICING
Putting prices in-line with the competitors’ price.
SONY XPERIA ARC = 27448
HTC HD7 = 27400

13. Predator (destroyer) pricing
Low prices are set to drive a firm out of the market.
Aims to reduce the number of competitors in the market.

14. PROMOTIONAL PRICING
when the firm sets the price lower for a set amount of time
Useful to clear off unsold and unwanted stock
It can generate a new outlook to a failing business

15. PSYCHOLOGICAL PRICING
Based on the attitude of a consumer towards a product, the company sets prices of the commodity.
Just below a whole number
Good value for money
High quality = high price

16. Price Leadership and Price Taking
A large company (price leader) sets a market price that smaller firms (price takers) tend to follow.
In the petrol industry, price leadership is shared amongst a few major firms.